Telenor’s Overseas Problems Confirm Negative Outlook for Debt Ratings

The debt ratings agency, Fitch Ratings has affirmed Norway-based telecommunications provider Telenor’s Long-term debt with a Negative Outlook. Fitch says that in addition to the recent deconsolidation of 56.5%-owned Ukrainian subsidiary Kyivstar, questions remain over the company’s ability to maintain majority stakes in Malaysia’s, as well as Thailand’s DTAC.
A worst case scenario would see almost 45% of EBITDA-Capex removed from consolidated results. While this scenario would result in an associated reduction in debt, it would significantly disrupt Telenor’s stated strategy of increasing control of associates and subsidiaries and potentially lead to a downgrade.
“Today’s affirmation reflects continued concerns over the evolution of risks in Telenor’s international mobile portfolio,” says Alex Griffiths, Director in Fitch TMT team. “While the core Norwegian business remains strong and generates a large if declining proportion of cash flow, the Outlook reflects a lack of control of Kyivstar, combined with further uncertainty regarding control at other entities.”
Fitch views such risks as symptoms of Telenor’s aggressive expansion in markets with volatile political and regulatory regimes. With revenue growth amounting to 47% in the 18 months to H107 (excluding Kyivstar and noting certain acquisitions), developing markets can still provide significant upside for Telenor. However, the risk of this growth must not be ignored in assessing the future cash generating ability of the company.
As markets and their legal and regulatory bodies continue to evolve, Fitch expects to gain increased clarity on Telenor’s control of its assets and its future cash generating ability. As such, the agency will continue to monitor the situation closely and will assess further developments and their impact on Telenor’s credit profile as they occur. If Telenor achieves a more stable portfolio of emerging market assets, combined with its existing low group leverage, the Outlook could be stabilized.

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